Evaluating risks upon onboarding new customers is an essential step that cannot be skipped by financial institutions. Analyzing the identities before they are allowed to open accounts in banks or perform money transactions allows businesses to detect fraudsters before any harmful activity is carried out. It is critical for the companies to know with whom they are engaging properly by conducting background research about an entity. Whether it is formulating relationships with customers, or knowing about the information regarding the investments, all are needed to be identified. By utilizing the KYC due diligence program, financial firms will be able to detect criminalities and data breaches in an efficient way.
Monitoring the Customers with e-KYC in Banks
Clients registering for a large number of transactions frequently can potentially pose a risk to the banking authorities. The due diligence financial services acquire the handling of new customers and monitoring partnerships with shareholders which need to be evaluated under the e-KYC process. This will allow the financial associations to protect them financially as well as reputationally. Once a business gets to know about the authenticity of its buyers and clients, it will reveal the level of risk associated with them. It is imperative as any link found with an unauthorized agency, a terrorist organization, or is against the anti-money laundering rules and regulations can be dealt with accordingly. So EDD Banking is used for this purpose.
Determining the Level of Risks Associated with Clients
In the KYC process, the identity of the customers is revealed. The basic concept of customer due diligence for banks revolves around the constant monitoring and evaluation of the customer before any transaction can be carried out in banks. It is important to note that not every individual needs to go through a detailed procedure for CDD. Upon estimating the level of risk, the customer can be classified into various categories.
- Client Due Diligence (CDD) – A simplified version of client monitoring, where the activities of clients with partial transactions are overlooked and checked thoroughly to filter out any frauds or scamming risks conspiring of low level.
- Enhanced Due Diligence (EDD) – An advanced version of pulling out more details of a high-risk client. Any high-risk entity, whether it’s a politically exposed person (PEP), government official, or any business that is prone to corruption-related elements needs to be checked under enhanced due diligence to eliminate the risk of financial forgeries.
Factors of Executing an Effective EDD Procedure
Separating the High-Risk Individuals: With the identification process becoming digitized, not every customer is necessary to go through a lengthy procedure of identification. Low-risk individuals can be dealt with using simple techniques and can be onboarded easily. In contrast, high-risk individuals will be dealt with separately under high-precision identification tools.
Monitoring the Ongoing Transactions: Banks need to look at their customer’s transactions frequently as it might happen that a sudden increase in the transaction activities can pose to be suspicious to the customer. Secondly, the third-party individuals who show interest in the dealing of money are also needed to be checked under the AML measures.
Checking the Adverse Media Relations: Knowing about a customer from the documents is sometimes not enough. Therefore, to establish a full profile check, the reputation of the client is checked by revealing any sort of past accusation or charges exposed by the media which can create problems in the onboarding procedure. Document verification service is used to verify documents.
Elements that affect the EDD Procedure
- Customer Relationships: There might be situations in which customers are in bulk who possess a risk to the organization but are non-residents of the operational country. Tendencies of risk are also provoked if an individual has relations with a politically exposed person.
- Geographical Factors: People from politically sanctioned countries will be listed as high-risk individuals, similarly, people operating from a specified location of a terrorist organization might also fall into the category of high-risk.
- Other reasons: As financial institutions are prone to money laundering and terrorist financing, a level of confidentiality needs to be maintained by banks to onboard customers safely.
Wrapping it Up
Every new customer needs to be identified and classified on the level of risks they can potentially pose to the financial organization. Banks need to make sure that all of their customers are in accordance with KYC compliance. As money transactions are carried out on a routine basis in the corporate world, any politically exposed person performing a large number of transactions needs to be monitored under the enhanced due diligence process. Implementing the e-KYC solution allows the business to enrich its brand image by providing a satisfactory customer experience by securing its onboarding process.